Several important reports and research studies into the mining sector in South Africa have been published during the last two weeks, all saying the same thing – mining is still one of the most important economic sectors in SA, but it’s not operating anywhere close to its potential.
The publications all indicate that pleas to fix underlying problems are falling on deaf ears.
The latest survey on mining production from Statistics SA shows that mining production declined in April in terms of total volumes produced, and somewhat in terms of value at current prices.
The report does not delve into the reasons for the decline of 4.3% in mining production by volume in April 2022 compared to March, or the 1.8% decline in value, but indicates that it was largely the result of lower production of gold, platinum and coal.
Juan-Pierre Terblanche, who compiled the Stats SA report, tells Moneyweb that the long strike at a leading gold producer (Sibanye-Stillwater) reduced gold output and that high rainfall impacted on open cast coal mining operations and reported maintenance projects at platinum miners.
Read: Sibanye-Stillwater operations to recommence as strike and lockout ends
Of more importance is that total mining output has been largely steady over the longer term, not changing more than about 10% year on year since 2016 except for the big fall in production volumes during the Covid-19 pandemic.
This means mining production has not increased much – despite the global increase in demand and the huge increase in prices over the last few years.
Mining production increases when measured in terms of the total value produced, but things could have been much better if production had increased too.
Total value of mineral sales at current prices
Source: Stats SA
Falling production
The Minerals Council South Africa published its 132nd annual report recently, saying that mining production in SA is still very important, but that a 20-year index of mining production volumes shows that production has not reached the levels seen between 2000 and 2006 again.
“It is struggling to maintain 2015 levels. Prospects depend on commodity demand and prices holding up, a conductive policy environment, and physical infrastructure constraints to be eliminated,” says the report.
“The compounding uncertainties due to logistical bottlenecks (rails, ports and border posts), unsustainable high electricity tariff increases, as well as unreliable supply, and pervasive crime incidents are all contributing to unfavourable circumstances.”
It notes that all the good news about the recent contribution of the mining sector to the SA economy is about strong prices – export values increased over 45% in 2021, but volumes actually declined by around 2%.
The total value of production reached over R1 trillion in 2021, an improvement of 12% over 2020, according to figures in the Minerals Council annual report.
Read: Value of SA mining production breaks through R1trn mark
Minerals Council president Nolitha Fakude says there is a critical need for constructive partnerships with the government, its corporate entities and other stakeholders to unlock the benefits of the industry for inclusive growth, job creation and wealth creation.
“In 2022, ensuring the inclusive growth of the mining sector will require ongoing constructive and honest discussion with government, labour, communities and other key stakeholders around the inhibitors to growth, including challenges around the country’s energy generation capacity and the ailing rail infrastructure,” she says.
The Minerals Council promises that it will continue its engagements with the Department of Mineral Resources and Energy to expedite the processing of thousands of prospecting and mining right applications and to implement a transparent, functional and efficient cadastral system to quickly address the backlog and new applications to revitalise the industry.
Mine 2022, accounting firm PwC’s 19th annual review of the top 40 mining companies in the world, says mining companies posted stellar financial results for 2021, with revenues rising by 32% and net profits soaring by 127% on the back of high commodity prices and prudent cost management.
Read:
“The excellent financial performance resulted in mining companies being in a very strong financial position,” says Andries Rossouw, PwC leader of Africa Energy, Utilities and Resources in his foreword to the report.
“Debt has large been repaid and returns to shareholders have reached record rand levels for many companies. The fiscus benefitted from increased direct and indirect taxes and mining royalties to the extent that it could support ongoing socio-economic support during the pandemic.
“But it’s unclear how long this record run will continue.”
Problems
Not long ago, law firm Webber Wentzel’s team of mining experts noted in a report that SA has slipped down the latest rankings of the world’s most attractive mining destinations in the Fraser Institute’s Annual Survey of Mining Companies 2021.
“It is now one of the ten least attractive mining investment destinations out of 84 surveyed. According to the Minerals Council South Africa, this is the industry’s worst performance since 2009.
“This is an early indication that South Africa could again miss out on the resources super cycle,” says Webber Wentzel, which advises several SA mining companies on legal, tax and policy matters.
It notes several problems that government needs to address, mostly comprising small changes in legislation to make life easier for mining companies.
“Do away with cumbersome administrative processes that dissuade investors from investing in South Africa and ensure policy consistency. Review the Mineral and Petroleum Resources Development Act and Mining Charter to bring local ownership requirements in line with international best practice and ensure that ownership becomes truly broad-based rather than benefiting a select few,” it says.
It also notes the problems besetting the Transnet rail network, which are costing both the private sector and the fiscus billions of rands in lost opportunity and revenue.
Uncertainty with regards to minerals rights and ever-increasing pressure from local communities for services were also high on the list of problems that Webber Wentzel identified as limiting the growth of mining in SA.
The Minerals Council says in its annual report that its members reported an increase in employment in the industry, increasing from 452 866 employees in 2020 to 458 954 at the end of 2021. They earned a total of R153.8 billion in salaries.
Indications are that this could be much higher.
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